Mentor beats estimates, eyes $1 billion mark

SAN FRANCISCO—EDA vendors Mentor Graphics Corp. and Magma Design Automation Inc. reported quarterly results that beat consensus analysts' expectations Thursday (Feb. 24), with Mentor posting record annual revenue and saying it expects to become a $1 billion company in the current fiscal year.

Mentor (Wilsonville, Ore.) reported sales of $307.3 million for the fourth quarter of the company's fiscal 2011, ended Jan. 31, up 29 percent from the previous quarter and up 30 percent from the year-ago quarter. The company posted a net income in accordance with generally accepted accounting principles (GAAP) of $49.2 million, or 45 cents per share, more than three times the GAAP net income in the previous quarter and up 25 percent from the year-ago quarter.

On a non-GAAP basis, excluding charges, Mentor posted a net income for the quarter of $54.2 million, or 48 cents per diluted share, up 80 percent compared to the year-ago quarter.

Mentor's quarterly numbers exceeded consensus analysts' expectations, which called for sales of $292 million and non-GAAP earnings of 46 cents per share, according to Yahoo Finance.

For the full fiscal year, Mentor posted sales of $914.8 million, up 14 percent from fiscal 2010. The company reported a GAAP net income for the year of $27.1 million, compared to a GAAP net loss of $21.9 million in fiscal 2010.

Walden Rhines, Mentor chairman and CEO, said Mentor set an all-time record for revenue in fiscal 2011, growing the fastest of any of the "big three" EDA companies, a group that also includes Synopsys Inc. and Cadence Design Systems Inc. Rhines said the revenue growth was driven by 40 percent year-over-year bookings growth in the company's core system design business.

"Mentor’s decade-long emphasis on investment in system design software has driven us to a near-50 percent market share in printed circuit board design software and an operating margin percent for PCB software that is twice that of the overall company," Rhines said. "We expect this momentum to continue in this fiscal year as we achieve over 9 percent growth in Mentor’s revenues and a much greater percentage growth in earnings."

For the current quarter, which ends April 30, Mentor expects revenue to decline to about $225 million, which would represent a decrease of roughly 37 percent sequentially. The company said it expects to report GAAP net earnings of about 6 cents per share and non-GAAP net earnings of about 15 cents per share.

For fiscal 2012, Mentor expects sales to be about $1 billion, with GAAP earnings of about 77 cents per share and non-GAAP earnings of about $1 per share, the company said.

Also Thursday, Magma reported sales of $34.8 million for the quarter ended Jan. 30, up 1 percent from the previous quarter and up 12 percent compared to the year-ago quarter. Magma reported a GAAP net income for the quarter of $1 million, or 1 cent per share, compared with GAAP net losses in the previous and year-ago quarters.

On a non-GAAP basis, excluding charges, Magma reported a net income of $5.4 million, or 8 cents per share, up from $2 million in the year-ago quarter.

Consensus analysts' expectations for Magma's quarterly sales called for revenue of $34.3 million and non-GAAP earnings per share of 7 cents, according to Yahoo Finance.

Magma (San Jose, Calif.) said it expects sales for the current quarter to grow to between $35 million and $35.5 million. The company expects to report a GAAP net loss per share of 3 to 4 cents, and non-GAAP earnings per share of 7 to 8 cents, Magma said.

Rajeev Madhavan, Magma chairman and CEO, said through a statement that the company achieved solid performance in its fiscal third quarter, the eighth consecutive quarter that the company met or exceeded all guidance targets and generated cash. Madhavan said Magma added 14 new customer companies in the quarter.

It has become a zero-sum game. The pool of customers know it, and play off the majors against each other while making strategic purchases from SME's to keep them alive long enough to be acquired. Things got more complicated over the past 5-7 years as larger electronics firms shrank organically or sold off divisions to smaller firms seeking to grow, so there are more targets to chase but each one slightly smaller than what was typical in the 80's, 90's and early 00's.

Both Mentor and Synopsys are doing well. Mentor in particular is growing since their product quality is best in class. I think the question over the next couple of years is how much business they take away from other EDA companies?